Judge rules against state in lease battle with Exxon

POINT THOMSON: Decision to terminate the unit is called a violation of right to due process.

January 12, 2010 

In a state-versus-oil company battle with major implications for the development of Alaska's untapped North Slope gas, a state judge this week issued a ruling in favor of oil companies.

State Superior Court Judge Sharon Gleason said the state violated Exxon Mobil and its partners' constitutional right to due process last year when it terminated their Point Thomson unit -- potentially the second-most lucrative collection of gas leases on the Slope.

The oil and gas field sat undeveloped for decades though the state and Exxon had signed an agreement creating the Point Thomson unit in 1977. The goal of creating the unit was to make it more efficient to produce oil and gas from leases held by multiple companies.

The state began tussling with Exxon over the lack of drilling at Point Thomson during Gov. Frank Murkowski's administration, and the next two governors have carried the dispute forward.

The Alaska Department of Natural Resources rejected a couple of Exxon's development plans for Point Thomson, saying the company's commitments were too weak. When he terminated the unit last year, DNR Commissioner Tom Irwin said he couldn't trust Exxon to carry out its latest plan.

But Exxon protested, saying the time was now ripe to develop Point Thomson. Since then, the state has allowed Exxon to drill on two of the unit's 31 leases.

Exxon began the work last winter and says it hopes to start producing liquid gas condensate, to be fed into the trans-Alaska pipeline, by the end of 2014.

Despite Exxon's victory this week, the court fight is not over. State and Exxon officials said Tuesday they are still deciding how to respond to Gleason's ruling.

"The legal process grinds on," said Kevin Banks, director of oil and gas for the Alaska Department of Natural Resources.

He said he believes the state's tough stance has prompted Exxon's recent drilling, which he described as "a real change in behavior" for the company.

David Eglinton, an Exxon spokesman in Houston, said the company is "encouraged that Judge Gleason has agreed with our position" regarding the state's regulation of Point Thomson. He said Exxon officials are still studying the ruling but are ready to work with DNR on "all aspects of Point Thomson development."

In the ruling, Gleason said the state had failed to assure both "the fact and appearance of impartiality" during its handling of the dispute. For example, she said, the state broke its own rules when it didn't hold a special hearing before terminating the unit. At such a hearing, Exxon would have been able to present evidence backing up its development plan.

Gleason said the next step is for the state and oil companies to tell her within 30 days whether she should hold the special hearing, or if an administrative law judge should handle it.

"It would be a judicial type hearing, with evidence from both sides," Banks said.

Exxon's partners at Point Thomson are BP, Chevron and Conoco Phillips.

Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.

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